As the nation’s largest and smallest consumer tax preparation firms offer assisted and full service tax returns, H&R Block has come out with an interesting insight into the questions taxpayers come up with during their tax-filing process which revealed something interesting. They basically asked their customers which tax issue was the most confusing to them for tax year 2015. Topping the list was the Affordable Care Act (also known as Obamacare) and how it affected them. To help give you a better handle on it, we’ll discuss the finer points below
The Issues with Obamacare and Tax Preparation
Many were enticed to sign up for Obamacare in 2015 and 2014 for a variety of reasons from losing old coverage to tempting low rates. However, all who sign up for Obamacare, even if they qualify are usually given the rates after tax subsidies, which can be about 50% to 75% less than the full rate. However, if these particular tax payers earned a certain amount in income for 2015, they will not be eligible for these reduced rates and will have to pay the difference when they file their taxes, at times to the tune of thousands of dollars. Understandably, this has become a huge issue.
“We are seeing a clear indication that both assisted and DIY tax filers are experiencing levels of confusion on several complex filing issues,” said an executive director at H&R Block, Kathy Pickering. “No tax season is like any other and tax season 2016 is shaping up to be one of the more unique.”
Obamacare Penalty on Tax Preparation
Those who chose not to purchase health insurance in any form via the Marketplace, through an employer, or through a health insurance provider directly will have to pay a fine as part of their tax preparation. It is estimated that about three to six million Americans will have to pay the tax penalty associated with Obamacare for not having health insurance in 2015. The tax penalty for the uninsured rose to $325, or 2% of income for 2015, an increase of over 300% above the $95, or 1% of income, from 2014. If this trend continues, the Obamacare penalty will be $1,067 for those who are not insured for 2016.
1095 Issues
As part of Obamacare, all those who purchased insurance through the marketplace are supposed to receive either a 1095 A, 1095 b, or 1095 C form in order to complete their taxes. While these forms aren’t absolutely necessary to file in some cases, many are delaying their filing as they wait for their forms. This situation is made worse as the IRS has set the deadline to March 31 for mailing these forms, giving tax payers about a week to file, of which tax preparation rates have been known to rise. And in many states, the mailing of these forms has been delayed even further, which can spell disaster if you live in a state where the forms are required in order to file. In these cases, many tax payers have been forced to file for extensions, which can be costly.
It gets worse when those who dropped out of Obamacare in 2014 are surprised to find that they received a form 1095 for 2015 and after they filed their taxes. These types of situations can be difficult to correct, especially at this time of year. What can your penalty be? Click on this free tax calculator to find out.
Obamacare and Tax Preparation in Houston
If you live in Houston and need help with Obamacare and understanding your tax returns, give us a call at 281-894-6494 or send us an email.